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Sep 15th 2012 | from the print edition
THE World Economic Forum is a conference for optimists. Take Ashish Thakkar, a
young businessman whose family fled Uganda in 1972 when Idi Amin expelled all
the Asians and grabbed their shops. The Thakkars went to Britain, patiently
rebuilt their fortunes and moved back to Africa in 1993. To Rwanda, as ill-luck
would have it. The next year, during the genocide, they lost everything again.
Most people would have given up on Africa at this point. Not Mr Thakkar. His
companies now employ 7,000 people there, manning call centres and running farm
projects. At the World Economic Forum in Tianjin in northern China this week,
he eagerly touted Africa as a new frontier of growth (though he runs his
empire from Dubai these days).
For decades the great and good of business and politics have gathered every
winter in Davos, a Swiss ski resort, for the World Economic Forum, where they
swap ideas about improving the state of the world and break ankles on icy
pavements. More recently the forum has spawned mini-Davoses on other
continents. The most successful is the summer Davos held annually in China
since 2007. It is a great opportunity for big cheeses from the rest of the
world to get to know their Chinese peers. In Tianjin, captains of industry
slurped noodles with cabinet ministers, charity bosses bent plutocratic ears
and young global leaders partied. But the mood was unmistakably gloomy.
Part of the problem is the euro crisis. But the biggest concerns are about
China itself: its magnificent growth machine is slowing. Companies that had
become used to double-digit GDP expansion must make do with 7.5% this year, if
the official target is met. Imports in August actually fell, by 2.6% year on
year. Behind closed doors, Chinese bosses fretted about bad debts and looming
lay-offs. One warned of a wave of brand elimination in China s car industry,
as early as next year. People are accustomed to grim news from Europe; from
China it is shocking.
What is all the fuss about? Annual growth of 7.5% is still pretty darn good. It
alarms Davos Man, for two reasons. First, with growth nugatory or negative in
the rich world, firms have come to depend on surging emerging markets,
especially China, to keep expanding. Second, no one knows whether Chinese
statistics are true. Is growth merely shifting down a gear. Or is it heading
for a crash? In a one-party state, if the central government sets growth
targets, local officials may view them as commands. To what extent do they
falsify the numbers to please their superiors? The answer is as clear as the
Tianjin skyline on a smoggy day.
Consider one indicator: electricity output. As Chinese statistics go, this is a
fairly reliable one. Only a few companies generate electric power, and it can
be metered in a way that dodgy cash transactions cannot. So here s the bad
news: in June China s electricity output did not grow at all. In the two months
before that, it grew by a feeble 2.7% and 0.7% respectively, year on year. Over
the same period, industrial value-added was growing at a cracking 9%, said the
statistics. Is it really possible for a manufacturing-heavy economy like China
s to grow at a decent pace when electricity is not? asks Nate Taplin of GK
Dragonomics, a research firm, in a paper called The Electricity Conundrum,
Revisited .
The numbers might be accurate. Mr Taplin notes that China s heavy industries,
such as steel, cement, and chemicals, use lots of power but generate only
meagre profits. So the gap between electricity growth and industrial
value-added is not in itself enough evidence for large-scale data
manipulation. But the fact that serious economists are even asking this
question points to a worrying truth: no other important country is as murky as
China.
Foreigners have always been mystified by it, of course. Often this is simply
because they haven t done their homework. Late one night this week, your
columnist met a young global leader who, after a happy drinking session, had
wound up outside the wrong hotel. He had no Chinese cash and, speaking no
Chinese, couldn t make the taxi driver take him to a cash machine. Schumpeter
paid his fare.
Out of sight
The real problem with China is not only that it is difficult for outsiders to
understand. It is that it is difficult for locals, too. The big news story this
week concerned Xi Jinping, the man who is set to become China s leader in a few
weeks. He has not been seen in public since September 1st. He cancelled
meetings with Hillary Clinton and Singapore s prime minister, citing back pain.
Rumours are swirling that something is amiss (see Banyan). The businessfolk at
summer Davos would like to know what is going on. Yet when Wen Jiabao, the
prime minister, addressed the forum on September 11th, he didn t mention the
subject and took no questions from the floor.
The free flow of information fuels progress. Companies listen to their
customers complaints in order to improve their products. Politicians in
democracies listen to voters complaints and strain mightily to appease them.
In China, by contrast, the most important grumbles are voiced only in private.
Why, asked one young, foreign-educated entrepreneur, is China ruled by old men
rather than laws? Why are Chinese people not allowed to choose between
political parties? Why do officials with modest salaries wear such expensive
watches?
As long as living standards keep rising, China will probably remain stable. The
incredible growth engine will keep running, albeit at a slower pace, for years
to come. The capitalists gathered in Tianjin salivate at the prospect of
pushing beyond China s richer coastal provinces and into the hinterland, where
hundreds of millions of new consumers would love to buy a fridge and fancy food
to put in it. They fear, though, that if growth stalls, all bets are off. And
they worry that they won t see the crash coming.
http://www.Economist.com/blogs/schumpeter
from the print edition | Business